Inner ear hair cell loss and lack of hair cell regeneration are the major cause of permanent hearing loss. In this application, it is proposed to test whether mouse embryonic stem cell-generated hair cell- like cells are functional in the sense that they display mechanotranduction currents, appropriate basolateral currents, as well as the ability to form appropriate synaptic connections. It is further planned to develop an in utero cell-replacement treatment to determine correlation between occurrence of graft-derived hair cells and regionalized restoration of the organ of Corti. Physiologically, we expect that such a restoration may lead to alleviation of hair cell loss and hearing impairment in a mouse model. A second Aim addresses the guidance of embryonic stem cells toward hair cell-like cells. It is proposed to devise a protocol of defined inductive steps, which will enable researchers to efficiently generate progenitor cells from embryonic stem cells that are competent to develop along the otic lineage. A third Aim proposes to identify a non-FGF-based activity that is involved in otic induction, which is released from a region of the chicken embryo that is adjacent to the otic placode.